Mortgage repayments following separation

One of the most common issues that we hear from our clients after separation is confusion as to mortgage repayments and who is responsible for meeting the payments.

Depending on the structure of the loan from the lenders prospective, either joint or individually held, determines who is legally responsible for making these repayments. Regardless of separation or who is residing in the house, the bank expects the mortgage to be paid. Any default could affect your credit rating and impact your ability to refinance loans and retain the house in your property settlement, so it is very important to address it early.

If the mortgage is not paid, the lender may take possession of the house and exercise its power of sale under the Mortgage. In the event that there is any shortfall from such sale, the bank would be within their rights to recover the shortfall from the borrower/s. Although this would ultimately be a matrimonial liability for the purpose of your property division, it may also be considered a negative contribution if one party has conducted themselves in a manner intended to diminish the property pool so it’s best to be considered in your approach and not “cut off your nose to spite your face” as they say.

The reverse consideration for clients attending to the mortgage payments is whether they will get “credit” for that in the property settlement? Although it may be considered a post settlement contribution there is often little weight given to such payments, which, if not offset by the benefit of living in the home are more likely to be used as an offset for child support or spousal maintenance payments.

So who should pay or in what proportions? In the absence of a Court order, it often comes down to who has capacity. If all else is equal, the person who remains living in the home should pay the mortgage and expenses, given that the spouse who moved out often has the burden of the payment of rent. Some couples will negotiate to add together the combined costs of mortgage and rent and share the overall expense or where mortgage payments and ownership costs for the family home are high, the person remaining in occupation might pay the equivalent of market rental (as if the property were tenanted) with the “extra” expense being shared.

What happens if you have moved out and your ex stays in the home but refuses to pay the mortgage or is unable to do so? If there are children involved, you may be able to negotiate to offset the mortgage payments against your Child Support liability. This has to be agreed to so don’t assume your payments will be accepted and then find yourself with a liability to the Agency.

If you can’t afford payments, the first step which we would recommend taking is to contact to the lender and advise them of your circumstances. You will be surprised to known that most lenders are quite flexible and are willing to reach a compromise about repayments pending final property arrangements. This could be reducing the repayments on your mortgage, utilising any redraw facility or even suspending payments entirely. At the end of the day the lender wants to keep your business and wants to be paid so they are usually quite happy to work with you if you are transparent about what’s happening. Remember though, if you stop making payments, your credit rating may be affected so you need to approach them sooner rather than later.

In some circumstances, you may be eligible to obtain an order for interim spousal maintenance which requires your ex to pay or contribute to the ongoing mortgage repayments. Alternatively, an order by the court could be made requiring your ex to vacate the home and allow you to move into the house. If neither party is in a position to service the mortgage, the house will need to be sold. Court orders for sale are expensive and take time so it is always preferable to reach agreement for these steps to occur. This can happen as part of the journey to an overall property settlement with the proceeds of sale (or any disputed portion) remaining in a trust account, pending finalization of your property settlement.

It is a common misconception that if you move out of the house, you surrender your right and interest to the house. This is simply not true. In some instances, it does make it harder to negotiate because it may reduce your ex’s motivation to sell or move out, especially if they are living rent and mortgage free.

Anything that you do or cease to do following separation can have consequences in your final property settlement. We recommend that you seek professional advice at the earliest opportunity and seek to work co-operatively with your former partner to address these issues as ultimately it will be for your mutual benefit to do so.

This information is provided as a general guide only and should not be used or relied upon by any person without obtaining legal advice in relation to their own circumstances.

"Liability limited by a scheme approved under professional standards legislation"